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Corporate Governance and Investment in East Asian Firms: Empirical Analysis of Family-Controlled Firms

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Author Info
Hanazaki, Masaharu
Liu, Qun
Abstract

In this paper, we analyze in quantitative terms the influence of family control on the pattern of corporate investment, using firm-level data from Indonesia, Korea, Malaysia, the Philippines, and Thailand to regress the investment function and focusing on the family ownership structure that characterizes East Asian corporate governance. Our results present evidence that family-controlled firms, the majority of the firms in our data set, face more severe internal financing constraints than non-family-controlled firms. Our findings suggest that the mechanism in East Asian countries, which is commonly assumed to permit smooth reallocation of money among investment projects through the internal capital markets of family-controlled group firms, does not work well, and that, coupled with the difficulty of obtaining financing from external capital markets, it my lead to strict internal financing constraints on investment.

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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2006-12.

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Length: 40 p.
Date of creation: Oct 2006
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Handle: RePEc:hit:hitcei:2006-12

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Related research
Keywords: Family-controlled firm; Corporate Investment; Asian crisis;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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  11. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September. [Downloadable!] (restricted)
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  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  13. Khanthavit, Anya & Polsiri, Piruna & Wiwattanakantang, Yupana, 2003. "Did Families Lose or Gain Control after the East Asian Financial Crisis?," CEI Working Paper Series 2003-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  14. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
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  15. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186. [Downloadable!] (restricted)
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  16. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04. [Downloadable!] (restricted)
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  17. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. [Downloadable!] (restricted)
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